Thursday, December 3, 2009

Vendor Funds Fatten Titan's Budget by $100M With Genre-Busting Spots

BATAVIA, Ohio (AdAge.com) -- Retailer-vendor co-op ads have existed almost as long as advertising itself, but Walmart is taking it to a new level both in scope and sophistication, creating a new genre that appears to be attracting marketers in ways that prior programs haven't.

It's hard to watch TV this holiday season without coming across one of several vendor-funded Walmart ads—be they for Microsoft's Xbox or Dove's Campaign for Real Beauty. In fact, data from TNS and Walmart suggest vendors may have contributed as much as $100 million to the giant retailer's media budget last quarter, and definitely fueled two thirds of its year-over-year spending hike.

Many retailers, such as Target, Walgreens and CVS, also have major co-op programs, of course, but the rapid growth this year of Walmart's program—sparked in part by the retailer boldly asking for a share of marketers' consumer marketing budgets—looks to be unprecedented. In fact, vendor funds have become a financially material part of Walmart's marketing effort (see box).

But it's not just Walmart's girth that's providing plenty of reasons for marketers to cozy up to it. "It wouldn't be the first dollar I'd spend," said an executive with one vendor who has run co-op TV ads with Walmart. "But it's also not a bad use of money."

That's because, unlike more conventional co-op programs like Target's, where vendor brands are used sparingly in cameo roles, Walmart's ads allow for considerably more creative input from vendor brands, giving them much more of a starring role. The trash-talking commercials for "Call of Duty: Modern Warfare" and "Madden 10" video games created by Walmart's shop, the Martin Agency, Richmond, Va., have generated five-figure viewership on YouTube and 4.5- to 5-star ratings. An attention-getting co-op ad for Unilever's Dove, whose "Campaign for Real Beauty" ads feature a montage of ordinary people with varying facial features, set to the tune of the children's song "Do Your Ears Hang Low?" For that spot, in fact, Martin and Dove agency Ogilvy & Mather collaborated. And some programs, such as the Coke-Walmart "Extended Family" holiday ad from Martin last year, have generated decent buzz online.

"It seems like Walmart has really nailed it, when you look at the integrations," said Jon Kramer, CMO of shopper marketing shop Alliance Sales & Marketing. "This whole 'Save Money. Live Better.' position just seems to fit with all these brands."

In contrast, he described Target's co-op efforts, while often creatively interesting, as "just fluff" which usually give vendor brands little for their money compared to Walmart's. While Target's co-op ads are often beautifully shot, within them the Target brand gets the play; in the "Modern Warfare 2" spot, for example, it's the Walmart brand that assumes the cameo role. Target declined to comment.

The degree of creative sophistication in the new generation of Walmart co-op ads also substantially surpasses the item-price callouts once common and still widely used by other drug and grocery retailers.

One person close to Walmart insists the retailer's merchandisers have been strong-arming suppliers for co-op dollars, noting that many haven't shown much interest in the program. Walmart declined to comment.

"I think if a brand had their choice, they clearly would not be participating in [co-op] ads," Mr. Kramer said. He believes few vendors see co-op ads as a way of staying on Walmart's shelves, because he doesn't think that alone will work. "But if you're looking for end caps or some kind of exposure in the store," he said, "it's almost required for you to participate in their Walmart TV (in-store) or bring something extra to the table."

Walmart's vendor spend

In an earnings call Nov. 12, Walmart U.S. CEO Eduardo Castro Wright said vendor funding accounted for about two-thirds of the retailer's increase in ad spending for the fiscal third quarter and a substantial portion of the around $480 million increase in his unit's gross margin (and commensurate decrease in operating margin in the form of increased ad spending).

He didn't specify the total. But TNS Media Intelligence data show Walmart hiked measured-media spending 38% or nearly $83 million in the calendar third quarter, excluding internet, radio and outdoor – which also have seen growing vendor co-op activity. Two-thirds of that comes to around $56 million.

The calendar quarter doesn't overlap entirely with Walmart's August-October fiscal quarter, and TNS data indicate Walmart more than doubled spending in the first two weeks of October vs. a year ago. Considering the missing media categories and spending acceleration in October, vendor ad dollars were likely closer to $100 million for the quarter.

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